Some fund managers copy their rivals with large holdings in the same shares to
avoid standing out from the crowd

If the manager of a football club picked players he didn't believe in, supporters would be up in arms. But a similar practice on the part of fund managers is accepted by thousands of investors.

Many of the professionals paid to manage your money back companies despite privately rating them as poor investments, some experts within the industry say.

Private investors would expect the fund managers they trust with their money to research companies thoroughly and then invest only in those that they believe in. So why does the opposite sometimes happen?

The answer is that some managers do not want to stray too far from the herd. So if a particular share is found in many of the funds run by their rivals, they may decide that they need to own it too – irrespective of their actual opinion of its merits.

The shares that tend to be found in large numbers of different funds are the giants of the FTSE 100 index – the same shares that are included automatically in "tracker" funds, which are designed to perform exactly in line with the index.

For this reason, funds that claim to make informed investment choices but actually contain many of the stocks found in the index are called "closet trackers".

One example is the Axa General Trust. A glance at our graph shows how similar its performance is to that of the wider market – and, according to research by Hargreaves Lansdown, the online fund shop, its holdings have a 76pc overlap with the FTSE All Share index.

Yet the fund has an annual management charge of 1pc. If you bought an actual tracker instead, you could pay as little as 0.27pc by investing with the HSBC FTSE All-Share Index fund. So instead of paying £10 a year in charges for a £1,000 investment, you would pay just £2.70p.

Axa's is far from the only fund with a large similarity to the index. Halifax UK Growth, Scottish Widows UK Growth and NFU Mutual UK Growth all have price graphs that move up and down in tandem with the wider market.

Some fund managers, called "multi-managers" or fund-of-fund managers, invest their clients' money in other funds rather than directly into shares and bonds. One multi-manager, speaking on condition of anonymity, told The Daily Telegraph: "I've had managers admit to me that they own stocks in which they have no conviction. They do it because they don't want to stray too far from the benchmark."

When these managers dislike a share, they often reduce their holding of it rather than selling altogether. So if, to take a random example, a manager thinks BP will perform badly and he knows that the oil company accounts for 5pc of the value of the index, he will cut his holding to, say, 4pc. In City jargon, this is known as "underweighting".

George Godber, a fund manager at Miton, said: "Lots of managers own shares because they are in the index or because they are large, and not because they have conviction in them."

So, how can investors spot when their fund is a closet tracker?

The simplest way is probably to look at a performance graph on the website of a fund analyst such as Morningstar or FE Trustnet. These graphs are normally plotted against the index or other benchmark.

Alternatively, look at the fund factsheet for data such as "sector breakdown". The biggest industry sectors in the FTSE All Share Index are finance (24pc), oil and gas (14.2pc), consumer goods (13.6pc) and consumer services (10.6pc), according to Jason Hollands of Bestinvest, the fund shop.

The Axa General Trust has 19.1pc in financials, 16.4pc in oil and gas, and 11.5pc in each of consumer goods and consumer services, according to its September factsheet.

Another indicator is to look at the top 10 holdings. The biggest shares in the FTSE 100 are HSBC (6.2pc), Vodafone (5.2pc), BP (4.1pc), Royal Dutch Shell (3.9pc) and GlaxoSmithKline (3.8pc). The Axa fund has the same four top holdings, although the percentages are slightly different: 6.5pc in each of Shell and HSBC, 5.8pc in Vodafone and 4.6pc in BP.

James Maltin of Rathbones, the wealth manager, added that it was a bad sign if no holding accounted for more than 3pc of the fund – indicating that the manager "appears to lack true conviction" – or if there were more than 100 different shares in the fund.

If you are tempted by a true tracker fund, make sure you get a cheap one - a few impose fees that are as high, or even higher, than you will pay for an expert fund manager.

Halifax, Marks & Spencer and RBS all have trackers with 1pc annual charges, according to Morningstar, while Aviva has two at 0.95pc, Threadneedle has one that charges 0.92pc and the Virgin UK Index Tracking trust has a fee of 0.91pc.